FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-10788
INTERNATIONAL SPECIALTY PRODUCTS INC.
(Exact name of registrant as specified in its charter)
Delaware 51-0333696
(State of Incorporation) (I. R. S. Employer
Identification No.)
818 Washington Street, Wilmington, Delaware 19801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (302) 429-8554
Commission File Number 33-44862
ISP CHEMICALS INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3416260
(State of Incorporation) (I. R. S. Employer
Identification No.)
Rt. 95 Industrial Area, P.O. Box 37
Calvert City, Kentucky 42029
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (502) 395-4165
<PAGE>
Commission File Number 33-44862-01
ISP TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
Delaware 51-0333795
(State of Incorporation) (I. R. S. Employer
Identification No.)
State Highway 146 & Industrial Road
Texas City, Texas 77590
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (409) 945-3411
See table of additional registrants.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES /X/ NO / /
As of May 10, 1996, 97,449,753 shares of International Specialty Products
Inc. common stock (par value, $.01 per share) were outstanding.
As of May 10, 1996, ISP Chemicals Inc. and ISP Technologies Inc. each had
10 shares of common stock outstanding.
As of May 10, 1996, each of the additional registrants had the number of
shares outstanding which is shown on the table below.
<PAGE>
ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
Commission
Address, including zip
File
No./I.R.S code, and telephone number,
No. of Employer
including area code, of
Exact name of registrant as State of Shares
Identification registrant's principal
specified in its charter Incorporation Outstanding No.
executive office
- - --------------------------- -------------- ----------- -----------
- - ---- ----------------------------
<S> <C> <C> <C> <C>
ISP (PUERTO RICO) INC. Delaware 10 33-44862-
03/ Suite 206B Iturregui Plaza
13-2626732
65th Infanteria Avenue
Rio Piedras, Puerto Rico 00924
(809) 768-5400
ISP ENVIRONMENTAL SERVICES INC. Delaware 10 33-44862-
04/ 1361 Alps Road
51-0333801
Wayne, NJ 07470
(201) 628-3000
ISP FILTERS INC. Delaware 10 33-44862-
05/ 4436 Malone Road
51-0333796
Memphis, TN 38118
(901) 795-2445
ISP GLOBAL TECHNOLOGIES INC. Delaware 10 33-44862-
06/ 818 Washington Street
51-0333802
Wilmington, DE 19801
(302) 429-7492
ISP INTERNATIONAL CORP. Delaware 10 33-44862-
07/ 818 Washington Street
51-0333734
Wilmington, DE 19801
(302) 429-7493
ISP INVESTMENTS INC. Delaware 10 33-44862-
08/ 818 Washington Street
51-0333803
Wilmington, DE 19801
(302) 429-7496
ISP MANAGEMENT COMPANY, INC. Delaware 10 33-44862-
09/ 1361 Alps Road
51-0333800
Wayne, NJ 07470
(201) 628-3000
ISP MINERAL PRODUCTS INC. Delaware 10 33-44862-
10/ 34 Charles Street
51-0333794
Hagerstown, MD 21740
(301) 733-4000
ISP MINERALS INC. Delaware 10 33-44862-
11/ Route 116
51-0333798
Blue Ridge Summit, PA 17214
(717) 794-2184
ISP REAL ESTATE COMPANY, INC. Delaware 2 33-44862-
12/ 1361 Alps Road
22-2886551
Wayne, NJ 07470
(201) 628-3000
ISP REALTY CORPORATION Delaware 1000 33-44862-
13/ 1361 Alps Road
13-2720081
Wayne, NJ 07470
(201) 628-3000
VERONA INC. Delaware 100 33-44862-
16/ NCNB Plaza, Suite 300
22-3036319
7 North Laurens Street
Greenville, SC 29601
(803) 271-9194
BLUEHALL INCORPORATED Delaware 1 33-44862-
15/ 818 Washington Street
13-3335905
Wilmington, DE 19801
(302) 651-0165
</TABLE>
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
INTERNATIONAL SPECIALTY PRODUCTS INC.
CONSOLIDATED STATEMENTS OF INCOME
(Thousands, except per share amounts)
Quarter Ended
------------------------
April 2, March 31,
1995 1996
-------- ---------
Net sales................................. $179,899 $185,611
-------- --------
Costs and expenses:
Cost of products sold................... 113,243 112,896
Selling, general and administrative..... 32,145 35,224
Goodwill amortization................... 3,309 3,300
-------- --------
Total costs and expenses.............. 148,697 151,420
-------- --------
Operating income.......................... 31,202 34,191
Interest expense.......................... (8,118) (7,896)
Equity in earnings of joint venture....... 450 1,414
Other income, net......................... 573 3,574
-------- --------
Income before income taxes ............... 24,107 31,283
Income taxes.............................. (9,038) (11,415)
-------- --------
Net income................................ $ 15,069 $ 19,868
======== ========
Earnings per common share................. $ .15 $ .20
======== ========
Weighted average number of common shares
outstanding............................. 99,666 97,742
======== ========
See Notes to Consolidated Financial Statements
1
<PAGE>
INTERNATIONAL SPECIALTY PRODUCTS INC.
CONSOLIDATED BALANCE SHEETS
December 31, March 31,
1995 1996
------------ ---------
ASSETS (Thousands)
Current Assets:
Cash .......................................... $ 14,080 $ 31,408
Investments in trading securities.............. 17,183 15,933
Investments in available-for-sale securities... 114,099 84,539
Investments in held-to-maturity securities..... 4,618 4,806
Accounts receivable, trade, net................ 60,327 76,145
Accounts receivable, other..................... 12,356 21,450
Inventories.................................... 107,969 97,377
Other current assets........................... 12,920 13,179
---------- ----------
Total Current Assets.......................... 343,552 344,837
Property, plant and equipment, net............... 475,550 475,156
Goodwill, net.................................... 430,458 427,158
Other assets..................................... 63,378 58,724
---------- ----------
Total Assets..................................... $1,312,938 $1,305,875
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt................................ $ 36,199 $ 22,450
Current maturities of long-term debt........... 398 431
Loan payable to related party.................. 50,597 45,610
Accounts payable............................... 41,727 46,913
Accrued liabilities............................ 56,538 56,001
Payable to related parties, net................ 9,429 7,526
Income taxes................................... 6,114 7,007
---------- ----------
Total Current Liabilities.................... 201,002 185,938
---------- ----------
Long-term debt less current maturities........... 280,254 287,009
---------- ----------
Long-term note payable to related party.......... 67,237 51,553
---------- ----------
Deferred income taxes............................ 55,743 52,674
---------- ----------
Other liabilities................................ 65,458 64,410
---------- ----------
Stockholders' Equity:
Preferred stock, $.01 par value per share;
20,000,000 shares authorized................. - -
Common stock, $.01 par value per share;
300,000,000 shares authorized: 99,888,646
shares issued................................. 999 999
Additional paid-in capital...................... 504,544 504,602
Treasury stock, at cost - 2,122,395 and
2,141,833 shares.............................. (16,718) (16,992)
Excess of purchase price over the adjusted
historical cost of the predecessor company
shares owned by GAF's stockholders............ (63,483) (63,483)
Retained earnings............................... 199,634 219,502
Cumulative translation adjustment and other..... 18,268 19,663
---------- ----------
Total Stockholders' Equity.................... 643,244 664,291
---------- ----------
Total Liabilities and Stockholders' Equity........ $1,312,938 $1,305,875
========== ==========
See Notes to Consolidated Financial Statements
2
<PAGE>
INTERNATIONAL SPECIALTY PRODUCTS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter Ended
--------------------
April 2, March 31,
1995 1996
-------- ---------
(Thousands)
Cash and cash equivalents, beginning of period........ $ 62,864 $ 31,263
-------- --------
Cash provided by operating activities:
Net income........................................... 15,069 19,868
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation..................................... 8,635 9,102
Goodwill amortization............................ 3,309 3,300
Deferred income taxes............................ (2,290) (4,905)
(Increase) decrease in working capital items......... (27,261) (8,975)
Increase (decrease) in net payable to related parties 1,417 (1,903)
Change in cumulative translation adjustment.......... 9,870 (2,801)
Other, net........................................... (8,163) 4,685
-------- --------
Net cash provided by operating activities.......... 586 18,371
-------- --------
Cash provided by (used in) investing activities:
Capital expenditures and acquisition................. (6,447) (9,871)
Purchases of available-for-sale securities........... (68,236) (36,856)
Purchases of held-to-maturity securities............. - (3,306)
Designation of trading securities as available-for-
sale............................................... (2,697) -
Proceeds from sales of available-for-sale securities. 40,946 72,587
Proceeds from held-to-maturity securities............ - 3,118
-------- --------
Net cash provided by (used in) investing activities (36,434) 25,672
-------- --------
Cash provided by (used in) financing activities:
Proceeds from sale of accounts receivable............ 1,768 -
Increase (decrease) in short-term debt............... 20,547 (14,081)
Increase in long-term debt, net...................... 6,930 6,704
Decrease in loans from related party................. (17,588) (20,671)
Repurchases of common stock.......................... (2,445) (464)
Other................................................ - 547
-------- --------
Net cash provided by (used in) financing activities 9,212 (27,965)
-------- --------
Net change in cash and cash equivalents................ (26,636) 16,078
-------- --------
Cash and cash equivalents, end of period............... $ 36,228 $ 47,341
======== ========
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized)............... $ 11,642 $ 12,020
Income taxes (including taxes paid pursuant to the
Tax Sharing Agreement)........................... 2,817 14,174
See Notes to Consolidated Financial Statements
3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The financial statements for International Specialty Products Inc.
(the "Company") reflect, in the opinion of management, all adjustments
necessary to present fairly the financial position of the Company at
December 31, 1995 and March 31, 1996, and the results of operations and
cash flows for the periods ended April 2, 1995 and March 31, 1996. All
adjustments are of a normal recurring nature. These financial statements
should be read in conjunction with the annual financial statements and
notes thereto included in the Company's Annual Report to Stockholders for
the fiscal year ended December 31, 1995 (the "Annual Report"), which was
incorporated by reference in the Company's Annual Report on Form 10-K for
the fiscal year then ended (the "Form 10-K").
NOTE A: Inventories consist of the following:
December 31, March 31,
1995 1996
------------ ---------
(Thousands)
Finished goods................... $ 71,431 $ 59,273
Work in process.................. 20,540 22,085
Raw materials and supplies....... 18,634 18,857
-------- --------
Total............................ 110,605 100,215
Less LIFO reserve................ (2,636) (2,838)
-------- --------
Inventories...................... $107,969 $ 97,377
======== ========
NOTE B: Contingencies
Asbestos Litigation Against GAF
GAF Corporation ("GAF"), a parent of the Company, has
advised the Company that, as of March 31, 1996, GAF had been
named as a defendant in approximately 48,400 pending lawsuits
involving alleged health claims relating to the inhalation of
asbestos fiber, having resolved approximately 205,000 other
lawsuits involving similar claims, and as a co-defendant in 10
pending lawsuits alleging economic and property damage or other
injuries in public and private buildings caused, in whole or in
part, by what is claimed to be the present or future need to
remove asbestos material from those premises.
The reserves of GAF and G-I Holdings Inc. ("G-I Holdings"),
a wholly owned subsidiary of GAF, for asbestos bodily injury
claims, as of March 31, 1996, were approximately $359.6 million
(before estimated present value of recoveries from products
liability insurance policies of approximately $185.6 million and
related deferred tax benefits of approximately $66.8 million).
GAF and G-I Holdings have advised the Company that certain
components of the asbestos-related liability and the related
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE B: (Continued)
insurance recoveries have been reflected on a discounted basis in
their financial statements, and that the aggregate undiscounted
liability, as of March 31, 1996, before estimated recoveries from
products liability insurance policies, was $401.9 million. GAF's
and G-I Holdings' estimate of liability for asbestos claims is
based on the pending class-action settlement of future asbestos
bodily injury claims (the "Settlement") becoming effective and on
assumptions which relate, among other things, to the number of
new cases filed, the cost of resolving (either by settlement or
litigation or through the mechanism established by the
Settlement) pending and future claims, the realization of related
tax benefits, the favorable resolution of pending litigation
against certain insurance companies and the amount of GAF's
recoveries from various insurance companies. On May 10, 1996,
the United States Court of Appeals for the Third Circuit (the
"Third Circuit") issued an opinion, concluding that the class
action was not certifiable as a class action, thus reversing the
decision of the lower court which found the Settlement fair and
reasonable. GAF has advised the Company that it intends to
pursue vigorously a rehearing before the Third Circuit en banc
and ultimately, if necessary, an appeal of the Third Circuit's
decision to the United States Supreme Court. GAF also has
advised the Company that it continues to believe the Settlement
will ultimately be upheld on appeal. As of March 31, 1996, G-I
Holdings' stockholder's equity was a deficit of $.9 million.
Neither the Company nor the assets or operations of the
Company, which was operated as a division of a corporate
predecessor of GAF prior to July 1986, have been involved in the
manufacture or sale of asbestos products. The Company believes
that it should have no legal responsibility for damages in
connection with asbestos-related claims, but the Company cannot
predict whether any such claims will be asserted against it or
the outcome of any litigation related to such claims. In
addition, should GAF be unable to satisfy judgments against it in
asbestos-related lawsuits, its judgment creditors might seek to
enforce their judgments against the assets of GAF, including its
indirect holdings of common stock of the Company, and such
enforcement could result in a change of control of the Company.
Environmental Litigation
The Company, together with other companies, is a party to a
variety of administrative proceedings and lawsuits involving
environmental matters ("Environmental Claims"), in which recovery
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE B: (Continued)
is sought for the cost of cleanup of contaminated sites, a number
of which are in the early stages or have been dormant for
protracted periods.
At most sites, the Company anticipates that liability will
be apportioned among the companies found to be responsible for
the presence of hazardous substances at the site. The Company
estimates that its liability in respect of all Environmental
Claims, as of March 31, 1996, will be approximately $16.9
million, before insurance recoveries reflected on the Company's
balance sheet (discussed below) of $6.9 million ("estimated
recoveries"). In the opinion of the Company's management, the
resolution of the Environmental Claims should not, individually
or in the aggregate, be material to the results of operations,
liquidity or financial position of the Company. However, adverse
decisions or events, particularly as to the merits of the
Company's factual and legal defenses to liability and the
financial responsibility of the other parties involved at each
site and their insurers, could cause the Company to increase its
estimate of its liability in respect of such matters. It is not
currently possible to estimate the amount or range of any
additional liability.
After considering the relevant legal issues and other
pertinent factors, the Company believes that it will receive the
estimated recoveries and it may receive amounts substantially in
excess thereof. The Company believes it is entitled to
substantially full defense and indemnity under its insurance
policies for most Environmental Claims, although the Company's
insurers have not affirmed a legal obligation under the policies
to provide indemnity for such claims.
The estimated recoveries are based in part upon interim
agreements with certain insurers. The Company terminated these
agreements in 1995, and GAF commenced litigation on behalf of
itself and its subsidiaries seeking amounts substantially in
excess of the estimated recoveries. While the Company believes
that its claims are meritorious, there can be no assurance that
the Company will prevail in its efforts to obtain amounts equal
to, or in excess of, the estimated recoveries.
For further information regarding asbestos-related and
environmental matters, reference is made to Note 14 to
Consolidated Financial Statements contained in the Annual Report.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations - First Quarter 1996 Compared With
First Quarter 1995
The Company recorded first quarter 1996 net income of $19.9 million
(20 cents per share) versus $15.1 million (15 cents per share) in the first
quarter of 1995. The 32% increase in net income was primarily attributable
to higher operating income, as well as income from the GAF-Huls Chemie GmbH
("GAF-Huls") joint venture and other income.
Net sales for the first quarter of 1996 increased 3% to $185.6 million
compared with $179.9 million for the first quarter of 1995. The sales
growth was attributable to increased sales of specialty chemicals (up $9
million or 6%), primarily reflecting increased sales volumes and higher
selling prices. This increase resulted from increased sales in the U.S.,
Europe and the Western Hemisphere. Sales for the mineral products business
decreased by $3.2 million (15%) due to lower sales volumes resulting from a
lost customer and adverse weather conditions.
Operating income for the first quarter of 1996 was $34.2 million, a
10% increase over last year's $31.2 million. The increase in operating
income was attributable to higher specialty chemicals operating income (up
$5.6 million or 22%), partially offset by lower mineral products results
(down $1.5 million or 37%). The higher specialty chemicals operating
income resulted from the higher sales levels and improved gross margins (up
3.2 percentage points) due primarily to improved price/cost margins and
continued benefits from the Company's reengineering program.
Interest expense for the quarter was $7.9 million compared with $8.1
million for the same period last year, primarily reflecting lower average
borrowings. Other income, net was $3.6 million in the first quarter of
1996 compared with $.6 million last year, primarily reflecting gains
associated with the Company's program to hedge certain of its foreign
currency exposures, and, to a lesser extent, higher investment income.
Liquidity and Financial Condition
During the first quarter of 1996, the Company generated cash from
operations of $18.4 million, invested $9.9 million in capital expenditures
and an acquisition, and generated $35.5 million from net sales of available-
for-sale and held-to-maturity securities, for a net cash inflow of $44
million before financing activities. Working capital increased by $27.3
million, primarily reflecting a $24.8 million increase in accounts
receivable due to higher sales in March 1996 versus December 1995,
partially offset by a $10.6 million reduction in inventories and a $5.2
million increase in accounts payable. Cash from operations in the first
quarter of 1996 included a $5.1 million dividend received from the GAF-Huls
joint venture.
7
<PAGE>
Net cash used in financing activities totaled $28 million for the
first quarter of 1996, primarily reflecting a $20.7 million reduction in
borrowings from an affiliate and a $14.1 million decrease in short-term
borrowings, partially offset by a $6.2 million increase in borrowings under
the Company's bank credit agreements. Financing activities also reflected
$.5 million of repurchases of the Company's common stock pursuant to a
share repurchase program. In anticipation of the expected completion of
the Company's share repurchase program in the second quarter of 1996, the
Company's Board of Directors has authorized the repurchase of an additional
1,000,000 shares.
As a result of the foregoing factors, cash and cash equivalents
increased by $16.1 million during the first quarter of 1996 to $47.3
million (excluding $84.5 million of available-for-sale securities and $4.8
million of held-to-maturity securities).
See Note B to Consolidated Financial Statements for information
regarding contingencies.
8
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The discussion relating to legal proceedings contained in Note B to
Consolidated Financial Statements in Part I is incorporated herein by
reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only.
(b) No Reports on Form 8-K were filed during the quarter ended March 31,
1996.
9
<PAGE>
SIGNATURES
-----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, each of the Registrants listed below has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INTERNATIONAL SPECIALTY PRODUCTS INC.
ISP CHEMICALS INC.
ISP TECHNOLOGIES INC.
ISP (PUERTO RICO) INC.
ISP ENVIRONMENTAL SERVICES INC.
ISP FILTERS INC.
ISP GLOBAL TECHNOLOGIES INC.
ISP INTERNATIONAL CORP.
ISP INVESTMENTS INC.
ISP MANAGEMENT COMPANY, INC.
ISP MINERAL PRODUCTS INC.
ISP MINERALS INC.
ISP REAL ESTATE COMPANY, INC.
ISP REALTY CORPORATION
VERONA INC.
BLUEHALL INCORPORATED
DATE: May 14, 1996 BY: /s/Randall R. Lay
------------ --------------------------
Randall R. Lay
Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FIRST
QUARTER 1996 10-Q OF INTERNATIONAL SPECIALTY PRODUCTS INC. AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000874578
<NAME> INTERNATIONAL SPECIALTY PRODUCTS INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 31408
<SECURITIES> 105278
<RECEIVABLES> 97595
<ALLOWANCES> 0
<INVENTORY> 97377
<CURRENT-ASSETS> 344837
<PP&E> 475156
<DEPRECIATION> 0
<TOTAL-ASSETS> 1305875
<CURRENT-LIABILITIES> 185938
<BONDS> 287009
0
0
<COMMON> 0
<OTHER-SE> 664291
<TOTAL-LIABILITY-AND-EQUITY> 1305875
<SALES> 185611
<TOTAL-REVENUES> 185611
<CGS> 112896
<TOTAL-COSTS> 112896
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7896
<INCOME-PRETAX> 31283
<INCOME-TAX> 11415
<INCOME-CONTINUING> 19868
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19868
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
